Inside the world of business
Fota a good bet for investors, so why is Nama keen to sell?
The information memorandum provided to investors by an Irish-led consortium bidding for the Fota Island Resort in Cork throws an interesting spotlight on the sale of assets by the National Asset Management Agency.
The property has a guide price of €20 million and has generated significant investor interest. Nama is believed to have paid €40 million for the loans associated with John Fleming’s property company, which developed Fota at a reported cost of €90 million.
The consortium in question is led by former pro golfer John McHenry and hoteliers Carl and Gerard Hanratty along with Roberts Nathan Corporate Private. They have raised €20 million privately to bid for Fota.
The document confidently predicts that the resort will be sold for more than €40 million after 2019. By that time, the investors will have held the asset for seven years and will be able to pocket the capital gain tax free thanks to a budget provision introduced last year by the Minister for Finance Michael Noonan to stimulate the property market. If everything goes to plan, the investors would double their money tax free after seven years.
Of course, these gains might not materialise and this investment is not without risk. Nonetheless, Fota looks a good bet for any buyer, especially when the economy turns. It made an operating profit of €1.3 million on turnover of €11.9 million in the year to the end of August 2012. The five-star hotel and spa is also just six years old.
Why the rush by Nama to sell now, when property values are so low? Why not hold the asset and sell when the market has turned and a better return can be gained for the taxpayer?
Unfortunately, the State loans agency remains silent on the matter.
' We have let the PMPA happen all over again'
The picture painted of Quinn Insurance Ltd in Leinster House yesterday was of a simple and profitable business model. You set up an insurance company, undercut your competitors, put an inadequate amount of money aside to provide for future claims, and marvel at the profits.
“We have let the PMPA happen all over again,” was how Labour TD Kevin Humphries put it.
Among those giving evidence to the Joint Committee on Finance, Public Expenditure and Reform was the Central Bank’s head of general insurance supervision, Domhnall Cullinan.
Asked how Quinn Insurance could have been allowed trade, he said the Central Bank through the Noughties had been “underresourced by any reckoning”. Asked if he had complained about the lack of resources at the time, Cullinan, who held a lower position in insurance supervision at the time, said he had, and that his complaint had gone up the line. What had happened after that, however, was a mystery to him.
The size of the actuarial team in the Central Bank during the period varied between “zero and two” and outsourcing was not allowed.
According to administrator Michael McAteer, a review carried out of prior year reserves had arrived at the following under estimates: Up to 2006 – €215 million. 2007 – €168 million. 2008 – €289 million. 2009 – €264 million. Total – €936 million. He believed appropriate reserves were now in place. “The historical audited accounts have turned out to not accurately reflect the true financial position [of QIL]”, he said.